1. A good economic theory: a. approaches reality in all its complexity. b. involves so much...

1. A good economic theory:

a. approaches reality in all its complexity.
b. involves so much distortion of reality that it is worthless.

c. focuses on the unique aspects of each situation.
d. involves some simplification of reality.

e. bears no relation to reality.

Solutions

Expert Solution

Involves some simplification of reality.
Economics as a broad subject, there is a simplicity needed to explain the phenomena in real perspective. In many cases, we did not get available data for the theory. So we used some secondary data and find conclusion using this. Theory is a simplified presentation of how two or more variable interact with each other. A good theory should be simple to understand.
The most important features of a good economic theory are: parsimony, tractability, conceptual insightfulness, generalizing, falsibility, empirical consistency and predictive precision. The simplified but generalized theory can explain the concept in a simple format. The real world issues are more complex and it is not easy to make conclusion from the given data. Most of the economic theories are based on some assumptions. This will help to find decisions on the basis of the assumptions. One of the most important assumptions in Economics is ceteris paribus, means that other things remain the same. This ideal and basic assumption used in several theories in Economics. The simplification of theory can help to understand the concept in layman perspective.

Rahul Sunny answered 1 year ago

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